Spotify officially filed paperwork for a public offering with the Security and Exchanges Commission on Wednesday (Feb. 28). The music streaming service will trade under the symbol “SPOT” at the New York Stock Exchange.
Among the information included in the regulatory paperwork, Spotify claimed a user base nearly double that of Apple Music, its closest competitor, including 159 million monthly active users and 71 million premium subscribers as of Dec. 31, 2017.
As well, last year, Spotify earned €4.09 billion in revenue ($4.99 billion by Wednesday’s conversion rate), up more than 38 percent from the $3.6 billion it raked in during 2016. But its losses were up as well, totaling €1.235 billion in 2017 ($1.506 billion), up from the €535 million ($652.57 million) the year prior.
It also revealed €109 million ($133 million) in free cash flow last year.
According to the documents, Spotify shares have between $90 and $132.50 so far this year on private markets. At that highest valuation, the company could be worth more than $23.45 billion based on ordinary shares outstanding as of Feb. 22.
But the company warned the price of its shares upon its listing on the New York Stock Exchange may have “little or no relationship to the historical sales prices of our ordinary shares in private transactions.” That’s because Spotify’s initial offering shares will not be underwritten, which means underwriters will not set any price to inform opening trades on the New York Stock Exchange. As such, states the prospectus, “the public price of our ordinary shares may be volatile, and could, upon listing on the NYSE, decline significantly and rapidly.”
Additionally, with the exception of China’s Tencent Music Entertainment Group and its holding company — with whom it partnered in December and currently owns a 7.5 percent stake — Spotify explained that none if its current shareholders have entered into the kind of 180-day contractual lock-up agreements that are often customary in an underwritten initial public offering. Because of that, any of them could sell any or all other ordinary shares at any time — including immediately upon listing — which could flood the market and negatively impact the public price of its shares.
The company positioned itself in a benevolent light for both the music industry and consumers, declaring more than €8 billion in royalties ($9.76 billion) to artists, music labels and publishers since its launch in 2008. “Our mission is to unlock the potential of human creativity by giving a million creative artists the opportunity to live off their art and billions of fans the opportunity to enjoy and be inspired by these creators,” it wrote in the prospectus summary overview.
Further interesting revelations from the documents include that as of July 1, 2017, co-founder and CEO Daniel Ek opted not take any base salary, but instead receive an annual bonus subject to the fulfillment of certain milestones. The first such bonus was awarded earlier this month from the board of directors based on performance goals for the amount of $1 million.
Among Spotify’s principal shareholders, Ek personally controls 25.7 percent of the company’s ordinary shares, amounting to almost 46.8 million in total. Meanwhile, his fellow co-founder Martin Lorentzon controls 13.2 percent of the ordinary shares, totaling over 23.6 million in all. (Actual ownership is closer to 9 percent for Ek and 12 percent for Lorentzon, excluding warrants.) Sony Music Entertainment also, notably, controls 5.7 percent of Spotify’s outstanding shares.
As well, the prospectus details “a high level of concentration” within the music industry, noting that music from Universal Music Group, Sony Music Entertainment, Warner Music Group and Merlin made up approximately 87 percent of streams in 2017.
“Our business may be adversely affected if our access to music is limited or delayed because of deterioration in our relationships with one or more of these rights holders or if they choose not to license to us for any other reason,” it warned potential investors. “Rights holders also may attempt to take advantage of their market power to seek onerous financial terms from us, which could have a material adverse effect on our financial condition and results of operations.”
Among other takeaways, Spotify reported average users stream 25 hours of audio per month, with premium subscribers streaming more than three times as much music as users on the ad-supported “freemium” tier and 31 percent of all listening coming from playlists. In all, users streamed 11.4 billion hours of content in 2017.
Regarding risk factors, the filing also noted a “competitive advantage” that Spotify’s competitors Apple and Google possess based on their ownership of app store platforms and their charging of in-application purchase fees, which are not being levied on their own applications — something Spotify has decried in the past. As well, it pointed to those same companies, as well as Amazon, for developing devices where their music streaming service is preloaded, “creating a visibility advantage.”
Spotify said it would list “as soon as practicable after this registration statement is declared effective.”
Following the filing, Ek tweeted that he was glad to have all of this information released to the public and that “transparency breeds trust.”
Feels great to have the cat out of the bag. Transparency breeds trust.
— Daniel Ek (@eldsjal) February 28, 2018